[Federal Register Volume 78, Number 58 (Tuesday, March 26, 2013)]
[Notices]
[Pages 18384-18385]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06876]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69190; File No. SR-BATS-2013-005]
Self-Regulatory Organizations; BATS Exchange, Inc.; Order
Approving Proposed Rule Change To Modify the Competitive Liquidity
Provider Program to, Among Other Things, Modify the Calculation of Size
Event Tests
March 20, 2013.
I. Introduction
On January 18, 2013, BATS Exchange, Inc. (``Exchange'') filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''), and
Rule 19b-4 thereunder, a proposed rule change to modify the Exchange's
competitive liquidity provider program, to among other things, modify
the calculation of size event tests. The proposed rule change was
published in the Federal
[[Page 18385]]
Register on February 6, 2013.\1\ The Commission received no comments on
the proposal. This order approves the proposal.
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\1\ See Securities Exchange Act Release No. 68789 (January 31,
2013), 78 FR 8655.
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II. Description of the Proposal
The Exchange operates a competitive liquidity provider program that
provides incentives to certain Exchange market makers to provide
additional liquidity in Exchange listed securities.\2\ The Exchange
proposes to modify certain aspects of the competitive liquidity
provider program.
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\2\ See Exchange Rule 11.8.02.
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A. Calculation of Size Event Tests
Currently, a market maker participating in the competitive
liquidity provider program would be eligible for a financial rebate
based on the size of the liquidity provided by the market maker. The
Exchange calculates the rebate by examining, at least once per second,
the quoted size at the national best bid and national best offer
(``Size Event Test''). The market maker with the greatest aggregative
size would be considered the winner of the Size Event Test.
The Exchange proposes to bifurcate the calculation of the Size
Event Test by the bid and the offer. Thus, instead of having one
winner, the Exchange proposes to have two separate winners--one winner
at the bid and one winner at the offer. As proposed, the market maker
with the greatest aggregated size at the national best bid (excluding
odd lots) would be considered the winner of the bid test and the market
maker with the greatest aggregative size at the national best offer
(excluding odd lots) would be considered the winner of the offer test.
B. Financial Rebates for the Bid Winner and the Offer Winner
In connection with the proposal to bifurcate the Size Event Test
winners into the bid test winner and the offer test winner, the
Exchange proposes to provide financial rebates separately. Currently, a
market maker must have at least 10% of the winning Size Event Tests in
order to meet its daily quoting requirements and qualify for the
financial rebate. The Exchange proposes to allocate the rebate to both
the bid test winner and the offer test winner.
C. Allocation of Financial Rebates
The competitive liquidity provider program assigns only one market
maker for the first six months of a security's initial listing.
Thereafter, multiple market makers may qualify to quote and to receive
the financial rebates. Currently, for Tier I securities and exchange
traded products, 80% of the rewards would go to the market maker with
the highest number of winning tests and 20% of the total rewards would
go to the market maker with the second highest number of winning
tests.\3\ The Exchange proposes to allocate the rewards differently.
Instead of a fixed dollar amount, the Exchange would reward the two
winning market makers based on a pro rata amount, calculated on the
combined sum of their winning tests.
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\3\ For Tier II securities, there is only one rebate for the
winner.
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D. Quoting Requirements
Currently, the Exchange requires each market maker to quote at
least one round lot. The Exchange proposes to increase the minimum
quoting requirement to five round lots in order for market makers to
qualify for the winning tests.
The Exchange also proposes to add an additional quoting requirement
for market makers to qualify for the winning tests. In order to qualify
for the winning bid test, the Exchange is proposing for market makers
to quote at least a displayed round lot offer at a price at or within
1.2% of the market maker's bid. Conversely, in order to qualify for the
winning offer test, the market makers must quote at least a displayed
round lot bid at a price at or within 1.2% of the market maker's offer.
E. Time of Operation
Currently, the competitive liquidity provider program measures
participants in assigned securities during Exchange regular trading
hours, from 9:30 a.m. to 4:00 p.m. The Exchange proposes to extend the
time by 10 total minutes, from 9:25 a.m. to 4:05 p.m.\4\
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\4\ See proposed Exchange Rule 11.8.02(g)(1).
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to national securities exchanges.\5\
In particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\6\ which requires that the
rules of an exchange be designed, among other things, to promote just
and equitable principles of trade, to remove impediments to and to
perfect the mechanism for a free and open market and a national market
system, and, in general, to protect investors and the public interest.
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\5\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition and
capital formation. See 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposal is consistent with the
requirements of the Act and should benefit investors by providing
additional liquidity in the securities that participate in the
competitive liquidity provider program. The Commission believes that
bifurcating the Size Event Tests could incentivize market makers to
provide two-sided quotes that could enhance the liquidity of the
security. Moreover, the Exchange's proposal to provide the rebate to
the winner of the bid test and the winner of the offer test could
provide a stimulus to market makers to increase quoting size on both
sides of the market. The Commission believes that the allocation, on a
pro rata basis, of the financial rebate should provide a more equitable
distribution of the rebate to the winning market makers. The Commission
believes that the proposed quoting requirements should enhance the
market size and could lead to tighter spreads. Finally, the Commission
believes the extended time period could entice market makers to provide
more quotes in the opening auctions and closing auctions.
For the reasons stated above, the Commission believes that the
proposal is consistent with the requirements of the Act and is designed
to promote just and equitable principles of trade, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change (SR-BATS-2013-005), be, and it
hereby is, approved.
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\7\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06876 Filed 3-25-13; 8:45 am]
BILLING CODE 8011-01-P